Working Capital

Working Capital is defined as the excess of current assets relative to current liabilities.  The relative size of a company's working capital is an indication of the short-term strength of the company.  A company with adequate working capital can carry adequate inventory, make purchases in bulk, and sell to customers on favorable credit terms.

Adequate working capital is important to the solvency of a company.  In other words, working capital allows a company to pay its debt as it comes due.  Companies are sometimes forced to go out of business because of inadequate working capital.